Study Reveals Secrets to a Successful Crowdfunding Campaign
Funding a start-up business is tough. For the most part, banks, venture capitalists and even angel groups want to fund businesses that have proven themselves.
Crowdfunding however, is filling the gap, according to Stand Out In the Crowd: How Women (and Men) Benefit From Equity Crowdfunding. The research was conducted by Ventureneer, a research firm that specializes in entrepreneurship, and commissioned by Dell and Ellenoff, Grossman & Schole, a leading securities and crowdfunding law firm.
Individuals, it turns out, want to support passionate entrepreneurs they know personally or by reputation. The report focuses on two crowdfunding options:
- Rewards-based crowdfunding: Funders receive a tangible item or service in return for their money. Companies like Pebble which pre-invoiced customers, funded the cost to manufacture its tech watches. They did this as a startup and just recently as a growth company. Websites, such as Indiegogo, Kickstarter, and Plum Alley coordinate the transactions.
- Equity-based crowdfunding: Investors receive a stake in the company. Currently, only friends, family, and accredited investors (a.k.a. wealthy people) in the United States can invest in a company for equity. They can do so through websites such as AngelList, CircleUp, Crowdfunder, and Portfolia. Equity crowfunding can be done in one of two ways. More about this later.
Stand Out In the Crowd found that women entrepreneurs are outperforming their male counterparts on some equity- and rewards-based platforms, such as CircleUp and Kickstarter. Women outperform men because women have the skills, including project management, marketing, storytelling, meeting milestones, being frank when mistakes happen, and communicating clearly – without jargon, with realistic revenue projections and words that align with actions. Of course, they are also excellent at followup.
Raising rewards impresses investors
Start-up companies can demonstrate to investors that their products have traction by conducting a rewards-based campaign first.
Julie Bombacino founded Real Food Blends to make nutritious meals from real foods packaged in a pouch suitable for feeding tubes. She raised money through a rewards-based campaign on Indiegogo to cover the costs of production, distribution, and marketing. She credits her successful rewards campaign with helping her raise an additional $550,000 offline.
Equity crowdfunding is an alternative to venture capital
Equity financing can be raised through crowdfunding either privately or publicly. With public crowdfunding, you have to verify that your investors are accredited, that is, wealthy enough to take the risk.
Kara Goldin’s Hint Inc. makes flavored water with no added sweetener. She hit a dead end trying to raise institutional money to expand her e-commerce model. But she raised $2 million in 10 days by reaching out to her most avid fans – employees of technology companies in Silicon Valley. To avoid the need for verification, she raised money privately online.
Other companies raise equity financing publicly. Tawnya Falkner created Le Grand Courtage, a line of sparkling wines. Her company raised $400,000 for inventory and marketing. Last year her company’s revenues grew 450%.
Another example of public crowdfunding is the startup, Wonder Technologies, which has developed patent-pending technology that enables credit cards to be used as gift cards by any merchant. The founding team, including Paige Cattano, raised $400,000 on Crowdfunder for product development and marketing/customer acquisition.
Wendy Strgar is founder of Good Clean Love, a growth company. She needed money to produce inventory so she could expand distribution for her all-natural, organic intimacy products. Strgar not only found money for inventory, but also business expertise and investors who are aligned with her values.
Crowdfunding is a hidden opportunity for all entrepreneurs to raise money, but its impact may be the greatest on under-represented groups, such as women and minorities. To get your free copy Stand Out In the Crowd, go to Ventureneer.com. The report provides tangible and actionable information including industry benchmarks, case studies, key insights from subject matter experts, and advice from successful entrepreneurs and investors.